The Unknown Is Not Uncertain

The robotization of professional services. The introduction of blockchain thinking to more and more industries. Access to truly Big Data. The colonization of Space. Life after streaming music. The significant extension of human life-spans. What happens next?

In each case, we know that some reasonable realization of each of these phenomena will undoubtedly take place in the not-too-distant future, but we have no idea of what it will eventually look like, nor what the economic, technological or societal implications might be. This is the unknown! It is hard to even think about such things, much less make judicious managerial decisions regarding them.

Think about the approaching Internet of Things. There is nothing uncertain about its coming, but what will it mean and how will it work? That’s the unknown! What we do know is that everything is likely to change as a result, just as the entire existing industrial landscape was irreversibly altered by the steam engine, the internal combustion engine, electric light, computing, etc. The eventual appearance of the unknown in all industries is not at all uncertain.

It’s hard to make good managerial choices in the face of the unknown. Most of us have built our careers mastering decision-making in the uncertain. We can conceive of choices, estimate probabilities, ask affected stakeholders about their preferences, model and optimize; all of which reduce the uncertainties that we face. But, we cannot do anything close to this when the subject is “unknown.”

When you are on a specific strategy S-curve, of the sort popularized by Clayton Christensen in The Innovator’s Dilemma, you are on well-established managerial turf. Each of these curves represents a period in time when a specific generation of offerings describes how an industry works. By the time each curve has achieved maturity, the incumbent market leaders are typically those who have succeeded in selling sufficient volume of goods or services so as to be able to standardize their processes and output and lead by virtue of being most efficient. They know what to do, and how to do it, and they do this better than anyone else. They manage by understanding uncertainty and navigating it well.

But, step off of an S-curve, and you are dealing with the unknown. Smart phones were unthinkable to earlier generation incumbent cell phone makers. CD producers struggled with the very idea of compressed (MP3) music. Fax machine producers, and national postal services, did not do email, and so the list goes on and on and on. In the rupture between two S-curves is terra incognita for the present incumbent market leaders. They may well not know what to do, or even if they can do it. This is the unknown!

Leading in the unknown is a completely different ballgame from what has traditionally been the practice in an industry before a period of disruption. How then to take such incumbent leader firms into the future?

With the unknown, prediction is out! You might predict the uncertain with some success, but you cannot predict the unknown. You don't even know what questions to ask! Yet, we do know that in the face of disruption, hesitation is suicide. A different leadership style is called for from the one that had been so successful when riding an existing S-curve was all that was required.

Nearly 40 years ago, Deng Xiaoping was determined to move China from the wreckage of the Cultural Revolution into the 21st century. He had no idea how to actually do this, nor what the outcome would be, but he used the metaphor of “crossing the river by stepping on stones” to illustrate how he proposed to proceed with his reforms. This is an apt metaphor for thinking about how to cross the rupture between an existing S-curve and a new one. We all have crossed rivers, or creeks, or streams by stepping on stones to see if they will hold our weight. Such experimentation and prototyping allows us to move forward, or withdraw quickly, depending upon the stone that we choose. The more we do this, and the faster, the more likely we are to find a crossing point. This is very different than confidently predicting the future and then developing an investment road-map to optimize our choices across a range of probabilistic predictions. A willingness to explore and include the ideas of others now trumps a reliance upon existing expertise and legacy success. This is a big departure from "management as usual.”

You’ll also remember the famous Steve Jobs’ 1998 comment regarding focus groups, that said: "It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them." Absurd? Quite the contrary! This is good advice, as long as he was talking about the unknown. As my IMD colleague, and good friend, Howard Yu recently observed, under Jobs, Apple’s growth strategy was all about addressing the unknown by being the architect of what comes next: “develop[ing] the next growth engine before the core business begins to show signs of maturity.” As a result, Apple got to write the script for the next generation of industry offerings, even in industries where it had not previously participated, such as music and telephony. This was a great advantage to the upstart industry intruder and also typically destabilized the more hesitant incumbents who were reluctant to give up managing what became increasingly irrelevant uncertainties. Experimentation, small bets and a willingness to withdraw quickly marked Apple’s go-to-market approach for many new products, which were more big departures from "management as usual.”

Eleven years after its publication, I have now come to see our book Virtuoso Teamsas also an exercise in S-curve jumping. Each and every one of the teams we included were confronting possible industry rupture and, as a result, our advice to “hire for skills and figure out how to deal with the attitudes” was exactly what they needed for jumping such S-curves. Alternatively, as incumbent market leaders cruise along an existing S-curve with no rupture in sight, it makes more sense to accept the common wisdom of: “hire for attitude, train for skills,” because attitudes are more important when no big change is in the offing. Otherwise, you'll need the skills (and with them come the attitudes)!

The urgency of all of this is that S-curve periods are shortening, and ruptures have to be crossed more frequently today than in the past. It is entirely possible that your bosses’ generation had no S-curves to jump, so their experience is now in question; they remained on the same S-curve for their entire career. Present day careers can expect one, if not several, S-curve jumps to be mastered if success is to be sustained. This is a huge departure from the past, and one that we are still not actively preparing managers for. The most important lesson, however, is to not assume that a leadership style that has worked well until now, will still be as useful in the future when the very essence of an industry is being challenged by disruption.